Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components.
Question:
Lone Wolf Technologies Inc. assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $77,400, the accumulated depreciation is $31,000, its remaining useful life is five years, and its residual value is zero. A proposal was made to replace the present manufacturing procedure with a fully automatic machine that will cost $145,400. The automatic machine has an estimated useful life of five years and no significant residual value. For use in evaluating the proposal, the accountant accumulated the following annual data on current and proposed operations:
| Current Operations | Proposed Operations | |||
| Sales | $245,400 | $245,400 | ||
| Direct materials | $83,600 | $83,600 | ||
| Direct labor | 58,100 | 19,400 | ||
| Power and maintenance | 5,400 | 9,300 | ||
| Taxes, insurance, etc. | 1,900 | 6,400 | ||
| Selling and administrative expenses | 58,100 | 58,100 | ||
| Total expenses | $207,100 | $176,800 | ||
Question Content Area
a. Prepare a differential analysis report for the proposal to replace the machine. Include in the analysis both the net differential change in costs anticipated over the five years and the net annual differential change in costs anticipated.
| Annual costs and expenses—present machine | |
| Annual costs and expenses—new machine | |
| Annual differential decrease in costs and expenses Annual differential increase in costs and expenses Annual differential decrease in costs and expenses | |
| Number of years applicable | |
| Total differential decrease in costs and expenses Total differential increase in costs and expenses Total differential decrease in costs and expenses | |
| Cost of new machine | |
| Net differential decrease in costs and expenses, five-year total Net differential increase in costs and expenses, five-year total Net differential decrease in costs and expenses, five-year total | |
| Annual net differential decrease in costs and expenses—new machine | Feedback Area |
